Ask Celes – How Do You Deal with Friends/Relatives Who Borrow Money?

Ask Celes

“How do you deal with friends borrowing money? I lent money to a friend last January but he hasn’t paid up. I am usually strict with money matters but I made an exception for him as I knew he really needed the money. Recently, another friend is requesting me to loan him some money as well.

I feel like this has put me in a place that I dont want to be — I’m becoming quite judgmental of my friends (who are asking me to lend them money), especially when I hear what they have been spending on.” ~ Len

Hi Len, your situation reminds me of a similar past experience when I loaned money to a friend.

My Personal Experience Loaning Money

In my case, my friend needed money for a personal emergency as well. Given that she was a good friend and I’m not one to leave friends in the lurch, I agreed to loan her the money—not just once, but twice.

However, despite the seeming emergency which was a big reason why I even agreed to loan the money in the first place, I later realized she was fairly extravagant in her lifestyle. For example, she would dine at bars and restaurants rather than food centers which are more budget-friendly. Normally where someone dines at wouldn’t be my concern at all, but in this case it was because she was deferring payment and the reason was because she didn’t have enough money.

At that time I didn’t understand how she would have money to make such extravagant (in relative terms, since I myself shied away from dining at restaurants then since they were more costly) expenditures but not have money to repay me. As much as I hated to think this, It just felt like she wasn’t serious about returning the money. After several attempts of reminding and trying to get my money back, I eventually gave up and considered it a sunk cost.

Just when I resigned to never getting my money back, she finally returned the money one day. I was pleasantly surprised, relieved, and thankful that she lived up to her word, but this episode had also tainted my impression of her. After that, I just became more evaluative about lending money to people in general.

How To Deal with Friends Borrowing Money

I’m sharing the experience to drive the point that money matters can often change the dynamics of a relationship—friendships included. While I did get my money back, I have many friends who loaned money to others, close friends in fact, who never returned the money thereafter. Some of those people even disappeared off the face of the earth after receiving the money.

I’ve come up with this three-part guide to help you deal with situations where friends (or even people in general) ask to borrow money from you.

A. To Loan or Not To Loan?

If you have a friend asking to borrow money, whether you want to lend him/her money depends on four factors:

  1. Your relationship with the person: How important is this person to you? Are you guys close? How far are you willing to go for this friend/friendship?
  2. Your values system: How important is helping someone in need to you? On the other hand, how important is the preservation of your finances? Which one is more important to you?
  3. Risk of default: How reliable is this person? How likely will he/she return you all the money in a timely manner? How likely will he/she default on the payment?
  4. Your need for the money: What if this friend doesn’t return you the money—will you be okay with that? Are you ready to lose this pot of money, or do you need it for personal emergencies?

If your answers for all four criteria are in favor of you loaning to him/her, then go ahead and loan the money.

However, if one or more criteria isn’t fulfilled, you might want to consider if the importance of helping this person outweighs those factors. You should only proceed with the loan if you are okay with loaning, and not because you feel morally obligated to do so or because you feel it is the right thing to do. This is your money we are talking about. Do it because you want to, not because you feel like you have to.

B. How Much To Loan?

You don’t have to loan the full amount the person requests. It depends on your personal financial needs and your relationship with this person. Only loan the amount you feel comfortable with loaning.

C. Repayment Plan

Before (not after) you loan the money, get clarity on the repayment plan:

  1. When will he/she be able to repay you?
  2. How will he/she be repaying you? Bank transfer? Cash? Paypal?
  3. Will he/she be paying in full or in installments?
  4. Can you get the repayment agreement down in some form of writing, be it in text messages, e-mail, or paper, so that there is some form of accountability?

Side Advice: Don’t Butt Yourself in the Person’s Life and Financial Habits

This is something I have learned from my experience loaning money. It’s easy to want to judge the person’s financial practices and expenditures after loaning him/her the money because technically, some of the money in his/her possession is yours.

However, it is not your place to judge them, because that’s the person’s choice and way of life. Your job is just to ensure he/she repays you according to the repayment plan. Lending him/her the money doesn’t automatically make you the boss of his/her life. In fact, trying to butt into how he/she lives his/her life is probably the surest way to make the relationship go downhill.

What If Someone Doesn’t Repay You In Time?

If the person doesn’t repay you duly, then confront him/her about the repayment and hold him/her accountable to what he/she borrowed. However, don’t drag his/her financial habits and personal expenditures into the picture. Give him/her a chance to sort things out on his/her own, in his/her space.

If it’s evident that the person has poor money management practices that’s making him/her unable to repay you on time repeatedly, then find a way to provide feedback on his/her financial habits without making the situation personal.

Focus on the situation (e.g., “It was agreed that you would repay $X by Y date but you have not done so yet.”), not on him/her as a person (e.g., “How can you be so irresponsible with money matters?”). Work on achieving a common solution (e.g., “Can we work out a new repayment plan which you will be able to meet this time?” or “Can I share some advice on better money management?”) rather than blaming the other party.

Read: How To Give Constructive Criticism in 6 Steps

What If the Person “Ran” Away?

If the person scooted with your money, then… I’m sorry for your predicament. And seriously, shame on him/her.

Don’t feel bad for lending the money to him/her, because you did it out of goodwill. It’s his/her folly and dishonor for running away with your money like that and betraying your trust in him/her.

Do think about the lessons you can learn from this experience though. Were there any signs that this person was not trustworthy? Could you have been more thorough in your assessment before agreeing to loan the money to him/her? Was there anything you could have done to hold him/her accountable to the repayment? How can you grow from this experience?

You might want to be more cautious before loaning money to other people next time, especially large sums of money. Don’t lend large sums at one go, unless you are really close to the person and you know the money is being used for legit reasons, such as emergency hospital bills.

Don’t let this bad experience scar your views on friendship and on loaning money though. There are still good people out there and there are people who genuinely need to borrow money for emergency reasons and will do whatever it takes to honor their repayment plan after receiving the money. One bag egg does not mean everything in the basket is bad.


For Those of You Who Have Borrowed Money

For those of you who are borrowing or have borrowed money from others, repay them in a timely manner. In fact, repay them as early as you can, rather than only on the agreed upon date.

Know that your friends/relatives took the leap of faith and lent you money where others probably wouldn’t, so you don’t want to let them down. Live up to their faith in you and be reliable on all counts. Be prudent in your expenditures and hold off any extravagant expenditures until you have repaid everyone in full.

When in doubt, simply ask, “Do I need to buy this? Is this a need, or is it simply a want?” If it is a want, then hold off spending that money. Put yourself in the lender’s shoes—how would you feel if the person knew that you spent your money on something when you could have saved it and returned that money to him/her? This will make it easier for you to manage your finances more prudently. 

Share Your Experience

I hope my response helped, Len! :) For those of you reading—do you have any experience lending money to others or borrowing money from others? How did you handle the situation and what was the outcome? Any advice you have for people in such a situation? Do share in the comments section.

Image: Question mark

This is part of the Ask Celes section. If you have a question to ask me, proceed to the Ask Celes page. Check out past Ask Celes questions here.

  • Bob

    Hi Celes,

    In my opinion, lending money is always a tricky situation between your conscious and your morals. I think it is better to give(if you can) and expect no return. This way both you and the other party are free from obligations and potential future arguments/disagreements.

    P.S. I hope your tooth is feeling better Celes!

    • Celes

      Hey Bob, you are right that it’s a tricky situation. However, I’m not sure about “expecting” no return. I think if we are clearly giving the money in the lines of a “loan”, then there is every right to “expect” repayment. It’s no different from borrowing from a bank and the bank expecting repayment, just that here it is done in the context of a friendship. “Expecting” no repayment when the money is clearly given on terms of a loan to someone is only doing yourself an injustice. Also, doing that just to “free from obligations and potential future arguments/disagreements” is only avoiding the problem (not knowing how to assert your rights, the person having poor money management issues, etc.) than solving it.

      Yes my wound is doing fine post the operation. Thanks for asking Bob! :)

      • Bob

        Another angle Celes would be to help the person by buying them exactly what they need. By offering this they may even refuse your help and find a solution themselves or someone else to borrow from!

        • Celes

          That would be great if they can find a solution themselves; but if they find someone else to borrow from, it’s just pushing the “need” from one person to another and doesn’t exactly solve our problem (not knowing how to get money back or assert our rights) or help the person solve the problem (dealing with the emergency need, money management issues, etc.). The “problem” may be out of our sight if the person is borrowing from another but it’s definitely still there.

          Also, I think often times the person who needs to borrow the money is asking to borrow based on an emergency need that really needs liquid cash, say to pay rent, hospital bills, etc. and isn’t something that is purchasable.

    • Arinze

      I agree, I only lend money when I know financially I wont need it, and I lend it with the mindset that I wont be getting it back. (I don’t tell this to the person borrowing). This protects me from having ill feelings if I don’t get it back as well as a buffer from future borrowings lol ( if you already owe me money which you promised to pay back and come back without paying first loan I will have all the reasons to say no). a lot of times people who borrow and don’t pay back sort of disappear from your life. Disclaimer: rules seem to change when dealing with family members you love.

  • elisabeth

    I am going through this now. I lent a friend money and she is taking a long time to pay me back. Another friend never even gave me back what he owed me. I will NEVER lend money again and I will tell anyone not to lend what they can’t afford to lose.

    • Celes

      Hey elisabeth, I hear you about your bad encounters with money in the past and I empathize with your situation. However, note what I advised in the article, which is to focus on learning from the past but not to let such past encounters “scar” or prevent you from helping others. By making such harsh resolutions (such as “NEVER” to lend money again), you are only hurting your soul and preventing yourself from being a help to close friends if they were to really need your help in terms of finances next time.

  • Migs

    Hi Celes:

    This is my system:

    If I know the person, I set an amount I am willing to LOOSE completely and lend it. I lend it with the warning that I am willing to LOOSE the money completely BUT will be greatly satisfied if I get it back. Many times I have gotten the money back and sometimes not. The good thing is that I’ve already accepted the loss so whatever happens It doesn’t bother me. Oh, and unless it is from a very poor person I try not to give the whole amount requested.

    • Celes

      Hey Migs, sure. Your system ties in with my recommendation in Part 1, Step 4, where it is important that the money isn’t something you need for personal emergencies. Otherwise it may add additional pressure to the loaning situation. It is a good premise to base loaning situations on IMO.

      I don’t know about lending money and assuming that one won’t be getting money back though; as I mentioned to Bob above, I don’t think it’s a healthy way to go about money loaning and it only sets yourself in a losing situation. It seems as if many of us have self-limiting views and strong emotions tied to money and it’s interesting to see how they exhibit themselves through our attitudes surrounding loaning/borrowing.

      • Migs

        Hi Celes:

        I live in Bolivia and people here are very poor. My 600 employees could hardly cover a doctor’s visit or a funeral or something similar. The minimum salary is U$130 monthly! ( I pay much more bit it isn’t enough) So I regularly have requests which I try to help with. Everything from children about to die for lack of a doctor or antibiotic… You name it. I just have to help.

        I really enjoy reading your blog,


        • Celes

          Hey Migs, that’s really sweet of you. ♥

          Thank you for your kind words! :) I appreciate it.

  • Diana

    Based on a long life of experience, I’d agree with most of what Celes has to say on this topic. It really is okay to have your friend sign a repayment agreement. If they balk, send them to some sites that recommend this. It’s good for the memory and good for the friendship. They are easy to find if you search on lending money to friends or relatives. If they can’t respect this or ask why you don’t trust them, tell them that money is business, and business can affect friendships. You want to keep the two separate because you value your friendship with them (or relationship with relative). So get a reasonable agreement that has a good grace clause.

    From the point of view of your own financial planning, the most important thing to remember about loaning money is not to loan anything that you can’t afford to lose. Anything from death to emergencies to just poor money management can get in the way of ever getting that money back.

    Don’t judge their lifestyle. We each put different value judgments on things. However, if there are false pretenses involved, for instance If they borrow money for fixing their car and end up with a wonderful new sound system instead, chalk it up to experience and insight into their honesty, but hold them to the loan.

    I would never tell them that I am willing to lose the money. That’s for you to know.

    Be aware that there are some tax laws about loans. Believe it or not the IRS can tax you on interest you SHOULD have made, if the loan is above certain large dollar amounts. What you can or can’t loan is ultimately up to you and does not reflect how much you like a person. Some people just don’t feel comfortable lending money, and that’s okay, too.

    If it’s a small amount, maybe a gift is more appropriate. If they insist on paying it back, take it. Some people feel terrible about borrowing or owing. If you know a friend is in hard times, but you are not consider telling them it’s a pay-it-forward loan. You are happy to help, and when they are in a better position, they will be able to help someone else. Loans can change relationships. As long as you know that and are willing to take that risk, just be smart about it and set both of you up for a successful transaction.

    • Bob

      Hi Diana,

      Re. Believe it or not the IRS can tax you on interest you SHOULD have made
      Some countries have tax rules where you can give:
      - so much money tax free every year (small amounts)
      - a marriage gift (a set figure)
      - a once in a lifetime gift (a larger sum)
      - every X years (lump sum)

      This may or may not reduce your annual tax bill.

  • Sam

    I had (bad error on my part) recently had dinner with a friend and former co-worker who was feeling rather hungry and unfortunately I didn’t have enough cash, at the end, to cover my whole portion of the bill (currently, I’m unemployed and am saddled with debt) – we ate at a mid-level restaurant, which included waiters, etc… I mentioned that I owe him and will definitely purchase him a dinner meal once I’m back on my feet, financially and work-wise. I could sense the guy looked irked after I had explained I’m quite short on funds (I even opened my wallet up to prove that I wasn’t kidding). I think I would have displayed the same annoyed look in my face as well if I were in his shoes. In hindsight, it’d been best if we ate at a fast food establishment, where I could’ve definitely afforded to pay for my whole bill.

    Thank you for sharing this article.

  • Michael

    I quite agree with this approach in deciding whether to loan and how much one’s willing to. It is normal to feel that the whole sum requested must be loaned. However, it is wise to determine our own limits based on our own situation too. Even a partial loan helps.

    I haven’t had to help out in others’ emergencies in recent memory, but I was told my late uncle who lent to many people go by a few rules when he lends:
    (1) A simple but concise loan receipt, stating the loan amount, date, signed by the lender
    (2) A nominal interest rate, however small, such that the lender knows there’s a time cost to not repaying

    I really like the advice to not butt into other people’s lives/habits. As tempting as it could be, we each have our ways. It’s certainly a delicate situation, and often one that has more down-side to the relationship than up-side.

  • David

    It is of my humble opinion that if you can’t stand assuming the loan as a write off from the get go, don’t do it. If you can conceive yourself living without the cash coming back, then consider the good your helping might do.

    • Celes

      Hey David, I agree with you. I think the main discussion that seems to be going on in the comments is to lend money and *expect* NOT to get your money back, when you are handing the money over on basis of a *loan* and not a *gift*. It’s important to make the distinction between lending on the basis that you can live without the cash and lending assuming you are never going to get the cash back / being okay with it. The latter is just avoiding a bigger issue of not knowing how to/not being able to get the money back.

      A simple way is to look at it like this – Say when our friends borrow our laptop, our mobile phone, our books, our wallet, our clothes, etc., do we automatically assume that we will never get these items back? No, we don’t. But why is it so many people are so ready to forgo their money when they loan it to others? My own take is that it’s due to resistances towards asking people for money (even if it’s ours) and/or not knowing how to do so. Learning how to do so tactfully and consciously is the solution for such situation, not avoiding the problem altogether by just assuming it’s a donation for a better cause or on pretext of preserving relationships.

  • james

    hai celes, very excellent topic. it is very useful to me. thanks a lot

    • Celes

      No problem. Glad you found the post useful James! :)

  • Alice

    Hi Celes, what I don’t understand is why you can’t resume your friendship with your friend after she repaid you in full. Regarding her dining habits are you sure that she was paying and it wasn’t on a company account, or she was under social pressure. In any case, she did repay you, so can’t you forgive her her tardiness?

    • Celes

      Hi Alice, I never said I didn’t resume my friendship with my friend. All I said was that I kept a certain distance after that, because the way the whole loaning / repayment situation was handled, which made me see her in a different light.

      My observations were not based on one-off or twice-off or thrice-off encounters, but based on entire evaluation of the situation and many different things that were observed. The dining thing is merely an example I cited; I didn’t go into lengthy details because this article isn’t about me or my friend but about how to handle loaning situations using my example to provide some context.

  • Irene

    It’s very easy… Tell them you charge interest and make them pay the interest portion monthly. You’ll see how fast they pay it back!! Might as well make it an investment! I’m always looking at the positive side! Lol!

    • Celes

      I personally wouldn’t go the interest route since it takes the friendship/relationship out of the picture and makes it a very cold bank-like financial transaction, but for those who feel that it would work for them, I say go for whatever works for you!

  • Tan

    Really thank for all of your sharing precious experiences of lending money to friends or whoever, I have same experiences as your, a childhood friend of mine and also another friend of mine, approach me for money issues, I am helping them in the darker night and extremely difficulty situation, but end up they betray my trustful to them, I have that kind of feeling, I assist them when they urgently needed, but when I need it back urgently, they either disappear, try to avoid me or giving me lots of excuses to defer the repayment, even create lots of sadness story to deceive me, the way they doing, no different from scams or swindlers, and also totally destroy the trust on the friendship between us, assist someone and end up mental anguish, the long waiting for the repayment is suffering.

  • Summer

    Dear Celest,
    How do you reject your own sibling who treat you like an ATM machine despite the fact that she makes more money than you do. My sibling would borrow a sum of money from me to pay road tax, car insurance and personal income tax and would make payment to me the next year after she has received her bonus. After returning the money to me the following year, she would borrow again and would repay me again another year. At times, she would borrow $500.00 from me this month and return next month. AFter returning the money, she would borrow back again. One day I put a stop to it and told her that I make less money than her and she should learn how to manage her finance. For a while it stopped, then the borrowing would start again…. She would borrow money from me to pay road tax, personal income tax, personal insurance and money to send her children overseas for exchange. No doubt she would return me the money a few months later . I feel that she does not know how to manage her life and I am like a bank to her. I have even told her that I would not lend money to her again as I do not want to jeopardise my relationship with her cos it is making me avoid answering her calls cos I find it difficult to say no to her. I can afford to let her the money and she did pay me back the money. However, I feel that I am her personal ATM… How do i say no to her? Appreciate if you can comments.

    • Celes

      Hey Summer, have you checked out the how to say no article? It’s something you have to put your foot down and simply let her know how you feel; otherwise the situation is never going to come to a stop. I think an honest “no” plus explanation of where you are coming from will help to make your stance clear.

      You may want to see if you can work with her in improving her financial habits too. It sounds like she might have some financial management problem, of which case you lending her money continuously wouldn’t be the solution anyway. If you can teach her how to fish (helping her inculcate better financial management habits), that will be better than giving her the fish (lending her the money).

      • Summer

        Dear Celest,
        Thanks for the advise. Actually, I have taught her how to fish and money management. I told her that she can cut cost by doing away without the maid as her children are already above 20 years old. I also told her the she can do away without the car. I even teach her how to pay income tax by monthly instalments. But all these advice falls on deaf ears. The last time I lend her the money, I told her it is the last time…. But it happen again and again.She would tell me that she needs the money urgently and would return the money to me the next month……. I would like to emphasize that she did return the money. . At one stage, I even resort to avoiding her phone calls but then she is my own sister. How long can I keep on avoiding her. I even resort to sending her a long email telling her that I have my own financial commitments as I am a widow supporting my two kids who are in the university…She seems to think that I am loaded with money from my late husband. I told her that before my husband pass away, he has incurred much debts treating his illness….. I would love to say no to her but I am afraid of jeopardizing my relationship with her…… How to stop her completely from asking me for loan again?

        • Celes

          Hey Summer, a direct “no” is really the key here… along with what I mentioned in the previous reply (explaining your rationale, etc.).

          At this moment you might be feeling that you lack the power in this relationship to say no, but the fact is that not saying no is only going to jeopardize your personal needs (further). It’s your call on whether to stand up for your personal needs or continue to let this arrangement drain you (it’s obviously doing the latter to you based on what you have been sharing).

          Whatever her reaction will be to your reply (whether she hits the roof, decides to fall out, etc.) is her issue… if she falls out with you or if it sours the relationship, it’s not something that is within your control. The best you can do is mitigate her unhappiness through how you say “no” (as I have explained in my first reply) and how you address the aftermath, but it doesn’t change the fact that you have to directly tell her “no” in the first place.

          I think right now it’s more of a personal barrier you are facing that is stopping you from directly just telling her no and drawing a clean line, and if you can break through this personal barrier, the problem will automatically resolve itself.

  • Summer

    Hi Celest,
    thanks for the advice…. Despite your young age, you are able to give sound advice. Saying no is very difficult. Changing myself is easier then to change others. I have been trying to get my sis to change her lifestyle so that she will not fall into the debt trap but apparently, it does not materialized. I have already send her a sms that “NO” i cannot lend her any money. Hopefully, she will not bother me again…… For friends, you can cut off the ties, but for sibling, it is difficult. I have try soft, hard, sarcastic approach but it does not seems to work at all. I guess i have to bear with the situation. My sis will not change and thats the fact.

  • Nancy

    I had a friend who always had money trouble. If I could afford not to be paid back, I would give it as a gift, and say, I had a windfall I don’t usually have. But normally, even if I have money to spare but it would only enable them to perpetuate bad habits, I say, “I’m sorry, I can’t help you on this.” I don’t say I dont have the money, just that I can’t help them. WHY I can’t help them is really none of their business.

  • omer

    what to do? ihave borrowed some money from a friend ….but i was unable to return intime i still need to return and i want do but not even a single penny in my pocket….how to deal because i am feeling embarraced

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